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HOME > Selected Writings > Youngblood > The truth about oil price hikes (13 June 1995)


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The truth about oil price hikes13 June 95
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The truth about oil price hikes

Danilo Araña Arao
Philippine Daily Inquirer (Youngblood), 13 June 1995, p. 9

THE agenda of Caltex, Shell and Petron in pushing for increased prices of petroleum products can be summed up in two words: more profits. In separate petitions they submitted last May 26, the three companies justified a price increase by citing the increase in the landed cost of imported crude oil and the weakening of the peso, as well as the depletion of the Oil Price Stabilization Fund (OPSF). They argued that they need an average increase of P1.18 per liter to augment the "losses" they suffered due to forces beyond their control.

While public hearings on these petitions have been set for June 15 and 16, the National Economic and Development Authority (NEDA) has already stressed that oil price hikes are inevitable, echoing the reasons cited by the transnationals.

Fine. If both the government and the TNCs prefer to hide big words, I guess we should take it upon ourselves to find out the truth. We can do it by analyzing what they say, and exposing what they do not say.

They claim that the OPSF has been depleted, and therefore there is need for upward price adjustments. But what they conveniently forget is that the supposed "buffer fund" got drained quickly because of increased reimbursements to Caltex, Shell and Petron, owing to the 33-centavo average increase in their profits per liter approved by the Energy Regulatory Board (ERB) in August 1994. The timing of that ERB decision was significant, since it was made when a P1 per liter rollback in prices was announced for premium, unleadedpremium and regular gasoline.

This means that despite the rollback, there was an increase in OPSF reimbursement claims amounting to P16.4 million every day, or P492 million monthly! (The amount was computed on the premise that there are 330,000 barrels which enter the country each day, and a barrel produces 151 liters. If we multiply 330,000 by 151, and then multiply the product by 0.33, we get 16.4 million.)

We must also take into account the additional "netback" given to the companies averaging 21 centavos per liter, effective March 1. The ERB decision was made only last April 5, and it happened right under our noses since there seemed to be no conscious effort to make it publicly known. This translates into an additional withdrawal of P10.4 million a day, or P312 million monthly!

So when the oil companies admit that their OPSF withdrawals have been averaging P900 million a month since the early part of this year (and Caltex projects an increase to P1.3 billion starting May), we already know how it came about and why.

Increases in landed cost? I guess they do not publicly admit the phenomenon of transfer pricing, which refers to the arbitrary pricing of TNCs of their products. They can do this since they monopolize all phases of the production process.

There is a cartel in the global oil industry composed of the so-called Seven Sisters --- Exxon, Royal Dutch Shell, British Petroleum, Gulf, Texaco, Mobil and Socal. They can manipulate prices since they virtually control all phases of crude oil production, from mining, refining, transportation to marketing. So it should not be a surprise that the landed cost of crude oil for each of the transnational corporations tends to vary a lot. When Petron was still owned by the government, it used to have the lowest landed cost among the three oil companies in the Philippines.

Of course, the oil companies have a point in saying the peso has weakened. We all know that devaluation results in increases in the prices of imported products, since we need more pesos to buy dollars. But then again, what the oil companies do not say is that they have a foreign exchange cover, which allows them to reimburse losses incurred from currency fluctuations. While other industries have to face currency devaluation as a business risk, it appears that the transnational oil companies get pampered by the government by letting them withdraw such losses from the OPSF. But why should the oil companies be different from other industries, and why should a forex cover exist in the first place?

The proposed oil price hike, stripped of all the technical jargon, only serves to pass on to the people the oil companies' passion for profits. But in the hard times ahead, we must not only vent our ire on oil companies but also on the government, since it has as much to gain as the transnationals.

How? Through taxes, of course! The oil industry is the most heavily taxed sector of the economy. More than 50 percent of the prices of petroleum products is made up of taxes. Aside from the P1 per liter special duty (a legacy of the Aquino regime), there is an ad valorem tax and varying specific taxes on petroleum products averaging P0.53 per liter. Government revenues from the special duty and specific tax amount to P76 million a day, or roughly P2.3 billion a month.

So if the oil companies are happy, then the government is also happy, if not happier. But the government and the TNCs should remember that we, the people, already know the facts and we will not take things sitting down.

By the time we stand up, they will probably realize that there are truly forces that are beyond their control.


Danny Arao, 26, has written two policy research studies on the Philippine oil industry.


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